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Public Comments on Fuel Economy Label Revisions

November 22, 2010

Recently, the Environmental Protection Agency and the National Highway Traffic and Safety Administration proposed revisions to the labels that auto manufacturers have to put in the windows of their vehicles to let buyers know how much—or how little—gas their cars will guzzle.

The agencies are proposing two quite different label designs (as well as a third alternative), and Policy Integrity has submitted comments using economic arguments to highlight which label will best serve consumers.

The new labels are designed to inform customers about the environmental impact of the automobiles they are considering. How well the labeling program will work depends on how consumers will respond to the new information—behavioral changes that are difficult to predict with precision.

But by adopting the letter grade design (currently the agencies’ preferred option, over a more numbers-heavy design) as the default choice, the agencies will most likely strike the right balance in choosing a label that is sophisticated yet comprehensible. Despite the uncertainty as to how exactly consumers will react to different label designs, most available economic theory, as well as historical and comparative evidence from other domestic and international labels for various consumer products, support the letter grade choice.

To further shrink down the uncertainty, the final rulemaking should include a plan to test the letter grade design by conducting field experiments and market research of all of the alternatives.

But regardless of which design is ultimately chosen, the agencies will need to adopt some important improvements. Upstream emissions (meaning pollution generated from the production of the fuel or electricity the car will eventually consume) should be included, not only tailpipe emissions: otherwise, electric vehicles look like they have zero emissions, when in fact the production of electricity does generate greenhouse gases. The labels should also present all greenhouse gas emissions—including the potent gases that leak from air conditioners—in a common tons-per-year metric.

With clearer goals and more precise data, the agencies will be better equipped in the future to fine-tune the label design. In the meantime, the best available evidence and economic theories suggest that the letter grade should be the preferred option.